“Corn prices are at a premium to wheat prices.” That statement is being bandied about the trade and published in the Ag press. The statement is true for the corn/soft red winter (SRW) wheat price relationship but not necessarily true for the corn/hard red winter (HRW) or hard red spring (HRS) wheat price relationships.
Corn futures contracts are traded on the Chicago Board of Trade and have the same monthly contracts as wheat. Wheat futures contracts are traded on the Chicago Board of Trade (CBT), Kansas City Board of Trade (KCBT), and the Minneapolis Grain Exchange (MGEX).
The CBT wheat contract is mostly based on the value of SRW wheat. The KCBT wheat contract is based on HRW wheat value. The MGEX contract is based on HRS wheat value. Hard spring wheat has higher protein than HRW wheat, which has higher protein than SRW wheat.
At this writing, the CBT Dec. corn contract price is $6.50. The CBT Dec. wheat contract price is $6.31. The KCBT Dec. wheat contract price is $7.25. The MGEX Dec. wheat contract price is $9.18. Corn prices are at a premium to SRW wheat prices, but not to HRW or HRS wheat prices.
In Oklahoma and the Texas Panhandle, cash wheat prices are mostly higher than cash corn prices. At this writing, Oklahoma wheat prices are significantly above corn prices, except in the Panhandle. At Hooker, Oklahoma, and Keys, Kansas, the corn price is $6.80 compared to a wheat price of $6.75.
In the Texas Panhandle, wheat prices are mostly 10 to 15 cents above corn prices. The wheat bid is for ordinary (11 percent) protein wheat.
The difference between CBT, KCBT and MGEX wheat contract prices is mostly the value of protein. For the Kansas City HRW wheat market, the basis for 11 percent protein is about 35 cents. The basis for 12 percent protein is about $1.05; for 13 percent protein, it is $1.33; and for 14 percent protein, it is $1.83.
At the same time in 2010, the Kansas City basis for 11 percent protein was a minus 35 cents. The basis for 12 percent protein was 10 cents, and the basis for 13 percent protein wheat was 30 cents. The HRW winter wheat basis is about 70 cents higher than in 2010.
The protein premium is also prevalent in the world market. Australia’s 2011 wheat harvest has just begun, and concern exists about the protein content. A report indicated that buyers are paying a $2 premium for export wheat with 13 percent protein.
In most markets, 11 percent or higher HRW protein wheat will not be priced lower than corn and will not be used in the feed market.
Protein basis does not suggest that wheat prices will remain at current levels. World wheat stocks are above average. Protein wheat stocks are relatively tight. Wheat prices, for wheat with less than 11 percent protein, may decline while wheat prices for wheat with relatively high protein may maintain current levels.
An example is the KCBT wheat contract price compared to MGEX wheat contract prices. On April 27, 2011, the KBT Dec. wheat contract price was $9.57, and the MGEX wheat contract price was $9.59. At this writing, the MGEX Dec. contract price is $9.18 versus $7.25 for the KCBT Dec. contract.
The odds are that the protein premiums will remain into the 2012 U.S. winter wheat harvest. Higher protein levels should result in higher basis and higher local cash prices.
Drought conditions are forecast to continue in parts of Texas and Oklahoma. Some of the drought area has sufficient moisture to establish a wheat stand. Protein should remain an important price component at harvest. This is NOT a good time to skimp on nitrogen applications.